1
00:00:02,640 --> 00:00:05,360
Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul swing you

2
00:00:05,360 --> 00:00:07,680
Speaker 1: along with my co host Lisa Brahma Waits. Each day

3
00:00:07,720 --> 00:00:10,240
Speaker 1: we bring you the most noteworthy and useful interviews for

4
00:00:10,320 --> 00:00:12,520
Speaker 1: you and your money, whether at the grocery store or

5
00:00:12,560 --> 00:00:15,480
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple

6
00:00:15,520 --> 00:00:17,959
Speaker 1: podcast or wherever you listen to podcasts, as well as

7
00:00:18,000 --> 00:00:21,239
Speaker 1: at Bloomberg dot com. Paul, I'm going to go out

8
00:00:21,239 --> 00:00:23,680
Speaker 1: in a limb here and guess that when people work

9
00:00:23,720 --> 00:00:27,040
Speaker 1: from home, they're not putting on a suit and tie,

10
00:00:27,120 --> 00:00:30,720
Speaker 1: and they may still be in their pajamas, depending on

11
00:00:30,760 --> 00:00:33,479
Speaker 1: who you are. And there's a question of will they

12
00:00:33,479 --> 00:00:36,120
Speaker 1: ever put on a suit again, and will they find

13
00:00:36,159 --> 00:00:39,800
Speaker 1: themselves and pajamas more often going forward as they increasingly

14
00:00:39,840 --> 00:00:44,000
Speaker 1: work from home, regardless of the progress or the progression

15
00:00:44,200 --> 00:00:47,720
Speaker 1: of the pandemic. Joining us is James Fallon, editorial director

16
00:00:47,760 --> 00:00:50,360
Speaker 1: of Women's Where Daily, to talk about pajamas and the

17
00:00:50,360 --> 00:00:54,560
Speaker 1: new workplace attire. James, aside from being tongue in cheek,

18
00:00:54,640 --> 00:00:58,880
Speaker 1: there's been an absolute ravaging of the retail landscape, with

19
00:00:59,480 --> 00:01:02,080
Speaker 1: hundreds of thousands of people furloughed or laid off within

20
00:01:02,160 --> 00:01:06,400
Speaker 1: the industry and a real exerstential question facing the entire

21
00:01:06,520 --> 00:01:09,080
Speaker 1: industry of whether we'll ever recover. Can you give us

22
00:01:09,120 --> 00:01:12,280
Speaker 1: a sense just right now of what the thinking is

23
00:01:12,360 --> 00:01:16,600
Speaker 1: among major retailers and fashion houses in terms of whether

24
00:01:16,640 --> 00:01:18,440
Speaker 1: they think that a lot of these people can be

25
00:01:18,480 --> 00:01:22,080
Speaker 1: brought back and be restarted after this as things get

26
00:01:22,120 --> 00:01:26,080
Speaker 1: back to normal. I think the sense li says that

27
00:01:26,360 --> 00:01:31,319
Speaker 1: they will come back, but very very slowly. And um,

28
00:01:31,360 --> 00:01:33,959
Speaker 1: you had the announcement from CA Prix Holdings this morning

29
00:01:34,200 --> 00:01:37,640
Speaker 1: that they were furloughing set their seven thousand North American

30
00:01:37,720 --> 00:01:41,880
Speaker 1: retail employees and they're saying their stores now won't reopen

31
00:01:41,959 --> 00:01:45,440
Speaker 1: until June one, and that's probably one of the latest

32
00:01:45,520 --> 00:01:50,840
Speaker 1: dates we've seen of stores being reopened. Um. So if

33
00:01:50,960 --> 00:01:54,160
Speaker 1: consumers aren't being able to go to a store for

34
00:01:54,240 --> 00:01:59,440
Speaker 1: six months of and this sole social distancing becomes part

35
00:01:59,520 --> 00:02:02,320
Speaker 1: of our every day norm, I just don't see people

36
00:02:02,440 --> 00:02:07,000
Speaker 1: rushing out by, you know, clothing right away, um, beyond essentials.

37
00:02:07,040 --> 00:02:12,120
Speaker 1: So you're looking probably if then before people begin to

38
00:02:12,240 --> 00:02:18,360
Speaker 1: behave quote normally and stop the arnking suits and pajamas together. So, Jim,

39
00:02:18,360 --> 00:02:20,600
Speaker 1: what a retailer is actually going to do with the

40
00:02:20,639 --> 00:02:23,679
Speaker 1: inventory that's been sitting in the store for months, that's

41
00:02:23,680 --> 00:02:26,000
Speaker 1: the key question. I mean a lot of it will go,

42
00:02:26,080 --> 00:02:29,560
Speaker 1: of course into the off price channel, but even the

43
00:02:29,600 --> 00:02:31,720
Speaker 1: t j x IS and Ross stores can only take

44
00:02:31,760 --> 00:02:34,720
Speaker 1: so much of it. Um. You had many Chariko PVH

45
00:02:34,840 --> 00:02:37,600
Speaker 1: last week saying that what they're looking at doing is

46
00:02:37,639 --> 00:02:41,360
Speaker 1: taking some of the existing more classic spring summer merchandise

47
00:02:42,560 --> 00:02:46,280
Speaker 1: and basically putting in a warehouse until spring and then

48
00:02:46,280 --> 00:02:49,040
Speaker 1: bringing it out again. Um. You know, a pair of

49
00:02:49,120 --> 00:02:51,959
Speaker 1: Chinos is a pair of chinos, so that will last.

50
00:02:52,600 --> 00:02:56,680
Speaker 1: The downstream effect that will have on manufacturers, however, will

51
00:02:56,720 --> 00:02:59,320
Speaker 1: of course be significant. I mean they're all their orders

52
00:02:59,360 --> 00:03:02,240
Speaker 1: already or in cut for fall. If suddenly for spring,

53
00:03:03,280 --> 00:03:07,600
Speaker 1: they're basically getting of what they normally are expecting to get.

54
00:03:07,960 --> 00:03:10,000
Speaker 1: That again, it's going to have a real impact on

55
00:03:10,760 --> 00:03:15,760
Speaker 1: overseas manufacturers, particularly in China. Jim, is it's just accelerating

56
00:03:15,760 --> 00:03:19,920
Speaker 1: a trend away from brick and mortar. Yes, really, I

57
00:03:19,960 --> 00:03:22,760
Speaker 1: mean it's it's a systemic change, and the US was

58
00:03:22,840 --> 00:03:26,359
Speaker 1: overstored for decades, and so this is probably going to

59
00:03:26,480 --> 00:03:30,840
Speaker 1: be a major shaking out of whether the consumer returns.

60
00:03:31,440 --> 00:03:33,680
Speaker 1: Once we're all allowed to leave our houses. We may

61
00:03:33,720 --> 00:03:39,000
Speaker 1: actually find the stores an escape mechanism. But I think again,

62
00:03:39,040 --> 00:03:42,520
Speaker 1: it will very much shake out the weaker players and

63
00:03:42,560 --> 00:03:45,200
Speaker 1: even some of the medium level players, and will begin

64
00:03:45,680 --> 00:03:49,040
Speaker 1: adjusting the square footage per consumer that's needed to be

65
00:03:49,080 --> 00:03:52,280
Speaker 1: adjusted for years. Jim, what do you think the impact

66
00:03:52,440 --> 00:03:57,120
Speaker 1: is going to be on luxury luxury? You're probably going

67
00:03:57,120 --> 00:03:59,880
Speaker 1: to I mean they're already down again. I mean in

68
00:04:00,120 --> 00:04:03,840
Speaker 1: China they were down, etcetera. I mean luxury may come

69
00:04:03,840 --> 00:04:07,920
Speaker 1: back faster, but again depending upon the nature of Wall Street.

70
00:04:08,000 --> 00:04:11,240
Speaker 1: I mean, luxury, of course rebounded pretty quickly after the

71
00:04:11,240 --> 00:04:15,840
Speaker 1: two thousand two thous financial crisis. If the stocks come

72
00:04:15,880 --> 00:04:20,479
Speaker 1: back and those people start making money again, definitely, But

73
00:04:20,640 --> 00:04:23,400
Speaker 1: so much of the luxury market was dependent upon the

74
00:04:23,520 --> 00:04:26,600
Speaker 1: Chinese that it will be depending on whether the Chinese

75
00:04:26,600 --> 00:04:30,479
Speaker 1: consumer comes back. We're already seeing anecdotal evidence of that

76
00:04:30,560 --> 00:04:34,080
Speaker 1: consumer beginning to spend in China, but a lot of

77
00:04:34,120 --> 00:04:37,240
Speaker 1: that luxury spending also was dependent upon the Chinese tourist,

78
00:04:37,680 --> 00:04:40,520
Speaker 1: and I don't see the tourists coming from China again,

79
00:04:40,760 --> 00:04:43,800
Speaker 1: certainly through the second half of the year. So when

80
00:04:43,800 --> 00:04:47,520
Speaker 1: you talk about the acceleration in the shift away from

81
00:04:47,520 --> 00:04:52,240
Speaker 1: brick and mortar to an online presence. I'm wondering about

82
00:04:52,400 --> 00:04:54,960
Speaker 1: an increase in bankruptcy since there are a number of

83
00:04:55,000 --> 00:04:58,320
Speaker 1: retailers that have been holding on by their clause to

84
00:04:58,440 --> 00:05:01,400
Speaker 1: their existence free years and have a lot of debt

85
00:05:01,720 --> 00:05:04,560
Speaker 1: that have been enabled to do so by their investors.

86
00:05:04,640 --> 00:05:06,479
Speaker 1: Do you think that this will actually lead to a

87
00:05:06,560 --> 00:05:09,960
Speaker 1: shakeout with increasing bankruptcies or do you think that there

88
00:05:10,000 --> 00:05:13,080
Speaker 1: will be sort of tripping along here on an ongoing basis.

89
00:05:13,880 --> 00:05:17,200
Speaker 1: I think you will see more bankruptcies coming through. I mean,

90
00:05:17,240 --> 00:05:20,320
Speaker 1: if you take the number I think I saw Moody,

91
00:05:20,480 --> 00:05:23,320
Speaker 1: seventy seven percent of the bad debt within Moonies was

92
00:05:23,400 --> 00:05:26,200
Speaker 1: really held by six companies, Um you know j C.

93
00:05:26,360 --> 00:05:29,520
Speaker 1: Penny and Jay Crew being amongst them. So you already

94
00:05:29,560 --> 00:05:34,080
Speaker 1: saw the reports. Others than us have written that Neiman

95
00:05:34,160 --> 00:05:38,120
Speaker 1: Marcus is maybe looking at a bankruptcy. So you are

96
00:05:38,160 --> 00:05:41,560
Speaker 1: going to see more bankruptcies, probably even during this let

97
00:05:41,600 --> 00:05:44,200
Speaker 1: alone coming out of this. Absolutely, I don't think the

98
00:05:44,200 --> 00:05:47,160
Speaker 1: Week can hang on if they're not getting any business

99
00:05:47,200 --> 00:05:49,880
Speaker 1: for six months, they can't. They can't hang on forever.

100
00:05:50,960 --> 00:05:52,760
Speaker 1: Jim Fallon, thanks so much for joining us. We really

101
00:05:52,800 --> 00:05:56,160
Speaker 1: appreciate your commentary. Jim Fallon, editorial director of Woman's Where

102
00:05:56,560 --> 00:05:58,360
Speaker 1: Uh Daily. At least I thought that was a good question.

103
00:05:58,400 --> 00:06:01,320
Speaker 1: I think, you know, it's certainly reasonable to assume that

104
00:06:01,360 --> 00:06:03,640
Speaker 1: there will be a This will cause a big shakeout

105
00:06:04,000 --> 00:06:06,280
Speaker 1: in the retail space, a lot more store closings, which

106
00:06:06,320 --> 00:06:08,400
Speaker 1: is a theme we've heard about. Yeah, I think that

107
00:06:08,440 --> 00:06:10,919
Speaker 1: it's going to be brutal, and it's brutal for for

108
00:06:11,000 --> 00:06:12,880
Speaker 1: the tens of thousands of people who have been laid

109
00:06:12,880 --> 00:06:16,080
Speaker 1: off from the industry. I also do wonder how it

110
00:06:16,120 --> 00:06:19,120
Speaker 1: will change style going forward. I mean, it seems almost

111
00:06:20,240 --> 00:06:23,400
Speaker 1: silly chat to think about something like that, but I

112
00:06:23,440 --> 00:06:26,880
Speaker 1: feel like working from home will change people's perspectives at

113
00:06:26,960 --> 00:06:29,200
Speaker 1: least a little bit going forward, and what people want

114
00:06:29,200 --> 00:06:30,760
Speaker 1: to get dressed up and go out or does that

115
00:06:30,839 --> 00:06:32,440
Speaker 1: what that seemed full of has given what we've just

116
00:06:32,480 --> 00:06:34,640
Speaker 1: gone through. Or on the other side, were people just

117
00:06:34,760 --> 00:06:37,839
Speaker 1: really want to you know, rip loose done. You know,

118
00:06:38,520 --> 00:06:41,280
Speaker 1: I'm actually voting more on that side. I gotta be honest,

119
00:06:41,279 --> 00:06:46,080
Speaker 1: looking around, but just saying, you're listening to Bloomberg Markets

120
00:06:46,120 --> 00:06:49,760
Speaker 1: with Lisa Abrama, Eds and Paul Sweeney on Bloomberg Radio,

121
00:06:50,400 --> 00:06:52,719
Speaker 1: you know that's a real question right now of whether

122
00:06:52,800 --> 00:06:56,200
Speaker 1: the pendulum has swung too far to the bearish side

123
00:06:56,360 --> 00:06:59,400
Speaker 1: or whether it's not bearish enough, And that is a

124
00:06:59,480 --> 00:07:03,600
Speaker 1: question the analysts are trying to answer completely blind, since

125
00:07:03,640 --> 00:07:06,640
Speaker 1: you cannot model chaos, and since you cannot know a

126
00:07:06,680 --> 00:07:09,359
Speaker 1: lot of the questions or answers to the questions currently

127
00:07:09,440 --> 00:07:11,520
Speaker 1: in the market. Joining us right now is Marco Paypeck,

128
00:07:11,920 --> 00:07:15,560
Speaker 1: chief strategist for clock Tower Group, and he has a

129
00:07:15,600 --> 00:07:19,200
Speaker 1: compelling view of this which actually goes against consensus. I

130
00:07:19,200 --> 00:07:22,440
Speaker 1: would argue, Marco, you argue that people are perhaps a

131
00:07:22,440 --> 00:07:26,360
Speaker 1: little too pessimistic. Am I getting that right? Yes? I

132
00:07:26,400 --> 00:07:28,600
Speaker 1: would say that that's the case. Thank you for having

133
00:07:28,600 --> 00:07:32,680
Speaker 1: me on, Lisa. Okay, So why well, because I think

134
00:07:33,080 --> 00:07:36,640
Speaker 1: one of the things that's happening in all the modeling

135
00:07:36,680 --> 00:07:39,480
Speaker 1: community out there is whether it's you know, looking at

136
00:07:39,600 --> 00:07:42,840
Speaker 1: the medical data, whether it's looking at the economic data,

137
00:07:43,040 --> 00:07:48,040
Speaker 1: is that we're largely linearly extrapolating from really really bad data.

138
00:07:48,920 --> 00:07:52,320
Speaker 1: The data on the virus itself is universally poor on

139
00:07:52,440 --> 00:07:57,000
Speaker 1: almost every single um characteristic. The only thing that we

140
00:07:57,040 --> 00:07:59,440
Speaker 1: really know about the virus, the only thing that we

141
00:07:59,520 --> 00:08:02,560
Speaker 1: have pretty good data with is that it does attack

142
00:08:02,640 --> 00:08:06,360
Speaker 1: different age cohorts in different way. Other than that, we

143
00:08:06,400 --> 00:08:09,040
Speaker 1: don't really know the mortality rate. We don't really know, uh,

144
00:08:09,080 --> 00:08:11,920
Speaker 1: the intaction rate. Um. So that's the first thing. The

145
00:08:11,920 --> 00:08:15,480
Speaker 1: second thing is we don't really know, um how how

146
00:08:15,480 --> 00:08:18,120
Speaker 1: the economy is going to develop over the next several months.

147
00:08:18,400 --> 00:08:20,200
Speaker 1: And one of the reasons we don't know that is

148
00:08:20,240 --> 00:08:24,120
Speaker 1: that we don't really understand how policy about social distancing

149
00:08:24,200 --> 00:08:27,520
Speaker 1: will change over the next several weeks or months. And

150
00:08:27,600 --> 00:08:29,880
Speaker 1: so what I propose is that we kind of think

151
00:08:29,920 --> 00:08:34,439
Speaker 1: about how policy reacts to something like a balance between

152
00:08:35,000 --> 00:08:38,480
Speaker 1: you know, um, a virus and economic impact. And I

153
00:08:38,480 --> 00:08:41,200
Speaker 1: think what's going to happen over time is that the

154
00:08:41,320 --> 00:08:45,160
Speaker 1: unit cost of fear is going to rise. And what

155
00:08:45,200 --> 00:08:46,920
Speaker 1: I mean by that is that at the beginning of

156
00:08:46,920 --> 00:08:50,520
Speaker 1: a crisis like this, fear is cheap. I mean, there's

157
00:08:50,559 --> 00:08:53,520
Speaker 1: no real cost to staying at home for the first week,

158
00:08:53,600 --> 00:08:56,720
Speaker 1: second week, third week. But as uneflorymed amounts, as people

159
00:08:56,760 --> 00:09:00,000
Speaker 1: start to project their own economic well being into the future,

160
00:09:00,400 --> 00:09:03,560
Speaker 1: you will see the unit cost of your rise, and

161
00:09:03,640 --> 00:09:06,839
Speaker 1: that will then compel policymakers to alter the current social

162
00:09:06,880 --> 00:09:11,520
Speaker 1: bustancing policies in some way. Thus, mitigating the ultimate economic

163
00:09:11,559 --> 00:09:14,760
Speaker 1: impact of the virus itself. That's a dynamic argument. It's

164
00:09:14,760 --> 00:09:18,480
Speaker 1: really difficult to model, but it's not just linearly extrapolating

165
00:09:18,480 --> 00:09:20,839
Speaker 1: for where we are today um to the next two

166
00:09:20,840 --> 00:09:24,160
Speaker 1: to three months, which obviously would produce a very bearish forecast.

167
00:09:24,400 --> 00:09:26,920
Speaker 1: All right, So Marco pencil aap force if you would

168
00:09:26,960 --> 00:09:29,920
Speaker 1: kind of your g d P a look for you know,

169
00:09:29,960 --> 00:09:32,920
Speaker 1: the remainder of because there's a question and I guess

170
00:09:32,960 --> 00:09:36,079
Speaker 1: initially people thought it might be a v quick snap back,

171
00:09:36,120 --> 00:09:38,600
Speaker 1: then maybe you maybe not so quick, and then maybe

172
00:09:38,600 --> 00:09:40,480
Speaker 1: even something like an l which is we're in this

173
00:09:40,559 --> 00:09:44,360
Speaker 1: for a long term. Okay, well, let's let's go back

174
00:09:44,400 --> 00:09:47,000
Speaker 1: a little bit and think about what is currently priced

175
00:09:47,040 --> 00:09:50,120
Speaker 1: stin in terms of GDP kind of outcomes. And I

176
00:09:50,160 --> 00:09:53,200
Speaker 1: think that um on March three, we hit an intra

177
00:09:53,280 --> 00:09:58,880
Speaker 1: day low of SP that's a thirty six percent draw down,

178
00:09:58,960 --> 00:10:01,400
Speaker 1: which is, you know, just the average draw down in

179
00:10:01,400 --> 00:10:04,880
Speaker 1: a recession. So I think the SMP five really really

180
00:10:04,960 --> 00:10:10,319
Speaker 1: quickly priced in a relatively bad outcome for the economy.

181
00:10:10,840 --> 00:10:13,040
Speaker 1: What I would say is that you know that was March,

182
00:10:14,440 --> 00:10:16,559
Speaker 1: we already had at that point about a week worth

183
00:10:16,559 --> 00:10:20,079
Speaker 1: of social distancing policies. Um, clearly we're gonna have them

184
00:10:20,080 --> 00:10:24,480
Speaker 1: throughout April. According to the o E c D, each

185
00:10:24,600 --> 00:10:29,360
Speaker 1: one of those months will produce a two decline in

186
00:10:29,400 --> 00:10:32,480
Speaker 1: the annualized GDP. So I think it's fair to say

187
00:10:32,520 --> 00:10:36,679
Speaker 1: that globally speaking, we're probably gonna lose for sure from

188
00:10:36,679 --> 00:10:39,920
Speaker 1: an annual growth perspective. FO So instead of three and

189
00:10:39,920 --> 00:10:42,800
Speaker 1: a half, we're already down at negative zero point five,

190
00:10:43,280 --> 00:10:45,720
Speaker 1: we could say maybe another half a month or month

191
00:10:45,760 --> 00:10:48,280
Speaker 1: of that. So I think that on an annualized basis,

192
00:10:48,320 --> 00:10:50,760
Speaker 1: we're going to be at minus one, minus one and

193
00:10:50,760 --> 00:10:54,880
Speaker 1: a half percent global GDP growth, which is obviously absolutely terrible.

194
00:10:55,600 --> 00:11:00,400
Speaker 1: But then there is this dynamic aspect where we see

195
00:11:00,440 --> 00:11:06,000
Speaker 1: social distancing policies alterned, alternated, mitigated, reduced, and then you

196
00:11:06,040 --> 00:11:09,240
Speaker 1: have the wall of tsunami coming behind you, this wave

197
00:11:09,320 --> 00:11:13,480
Speaker 1: of fiscal stimulus that is absolutely unprecedented, and it is

198
00:11:13,520 --> 00:11:16,880
Speaker 1: something that I think the market didn't price in on Marche.

199
00:11:17,320 --> 00:11:19,680
Speaker 1: The speed with which we priced in a recession tells

200
00:11:19,679 --> 00:11:21,880
Speaker 1: you two things. One, we have no idea, as you said,

201
00:11:22,120 --> 00:11:24,000
Speaker 1: Lisa at the beginning, we have no idea how to

202
00:11:24,120 --> 00:11:26,440
Speaker 1: price chaos. So that was one of the reasons we

203
00:11:26,440 --> 00:11:28,520
Speaker 1: fell down so hard. The second thing is that I

204
00:11:28,520 --> 00:11:31,319
Speaker 1: think most investors, and I know because we speak to

205
00:11:31,360 --> 00:11:34,040
Speaker 1: a lot of macro hedge fund at the firm that

206
00:11:34,200 --> 00:11:37,840
Speaker 1: is their business. Um, you know, most of them did

207
00:11:37,880 --> 00:11:41,199
Speaker 1: not expect anything like this. Most of them use the

208
00:11:41,200 --> 00:11:45,240
Speaker 1: two thousand nine stimulus playbook as the best case scenario.

209
00:11:45,559 --> 00:11:48,120
Speaker 1: And then on top of that, many said, well, politics

210
00:11:48,120 --> 00:11:52,120
Speaker 1: of the upcoming election will actually there delay some of

211
00:11:52,120 --> 00:11:56,000
Speaker 1: these stimulus efforts. Yes, this is sort of game theory, right.

212
00:11:56,040 --> 00:11:57,920
Speaker 1: It's basically how bad does it have to get before

213
00:11:57,960 --> 00:12:00,880
Speaker 1: the tsunami of money gets even bigger? And that basically

214
00:12:01,200 --> 00:12:05,200
Speaker 1: this sort of feedback loop will provide a backstop to markets.

215
00:12:05,200 --> 00:12:09,040
Speaker 1: Am I getting that right? Well, here's what I would say, Actually, Lisa,

216
00:12:09,080 --> 00:12:12,280
Speaker 1: I don't even think you need to get better much worse. So,

217
00:12:12,360 --> 00:12:14,960
Speaker 1: for example, right now, I think you can objectively say

218
00:12:15,000 --> 00:12:17,360
Speaker 1: that things are actually getting better. You know, once the

219
00:12:17,400 --> 00:12:19,960
Speaker 1: market saw that Italy and Spain and figure this out,

220
00:12:20,720 --> 00:12:22,520
Speaker 1: it doesn't matter how bad it gets into the US

221
00:12:22,679 --> 00:12:26,480
Speaker 1: this week. In other words, once we as market participants

222
00:12:26,480 --> 00:12:30,160
Speaker 1: can kind of check off that a relatively incompetent O

223
00:12:30,480 --> 00:12:33,920
Speaker 1: C D country I Italy can get a handle of

224
00:12:33,920 --> 00:12:36,600
Speaker 1: this issue. It doesn't matter if we have two bad

225
00:12:36,600 --> 00:12:39,200
Speaker 1: weeks going forward into us that will be kind of

226
00:12:39,200 --> 00:12:42,560
Speaker 1: like priced out. So I actually think that in terms

227
00:12:42,600 --> 00:12:44,920
Speaker 1: of what's coming down the pipeline on the stimulus front,

228
00:12:45,600 --> 00:12:47,680
Speaker 1: it doesn't even have to get worse for us to

229
00:12:47,720 --> 00:12:51,120
Speaker 1: get more of it because paulicy makers now have figured

230
00:12:51,160 --> 00:12:54,199
Speaker 1: out that they can use this as the reason to

231
00:12:54,280 --> 00:12:56,280
Speaker 1: kind of get a lot of a lot of things

232
00:12:56,320 --> 00:12:59,880
Speaker 1: that can pass in the past. Because of Paul polar Is,

233
00:13:00,679 --> 00:13:02,920
Speaker 1: they're not putting like a shopping list together for the

234
00:13:03,000 --> 00:13:06,040
Speaker 1: infrastructure plan. There may be a month away that could

235
00:13:06,080 --> 00:13:09,480
Speaker 1: be wanted to trillion dollars without really even needing that

236
00:13:09,640 --> 00:13:12,560
Speaker 1: extra ten percent of GDP, because remember we're at twelve

237
00:13:12,559 --> 00:13:15,520
Speaker 1: percent of GDP in terms of stimulas. That's more than

238
00:13:15,600 --> 00:13:20,240
Speaker 1: double what in two and nine the American Reinvestment and

239
00:13:20,280 --> 00:13:24,040
Speaker 1: Recovery Acts m basically gave us. We're already double that,

240
00:13:24,520 --> 00:13:26,920
Speaker 1: and we may get more no matter how bad things

241
00:13:26,960 --> 00:13:29,839
Speaker 1: get over the next couple of weeks. And Marco, thanks

242
00:13:29,880 --> 00:13:32,800
Speaker 1: so much for joining us. We appreciate your point of view. Certainly,

243
00:13:32,800 --> 00:13:35,080
Speaker 1: I think that more optimistic than I think we've heard

244
00:13:35,120 --> 00:13:38,000
Speaker 1: generally speaking over the less several days Marco topic partner

245
00:13:38,040 --> 00:13:40,040
Speaker 1: Chief Strategies for the clock Tower Group, based out of

246
00:13:40,080 --> 00:13:42,200
Speaker 1: Santa Monica, California. So that was at least a certainly

247
00:13:42,240 --> 00:13:44,520
Speaker 1: a different take on how this could all proceed to

248
00:13:44,520 --> 00:13:46,840
Speaker 1: over the next several weeks and months. I see how

249
00:13:47,679 --> 00:13:51,200
Speaker 1: pandemic mentality is allowing people to lobby for things that

250
00:13:51,320 --> 00:13:54,840
Speaker 1: they might have wanted anyway. I'm certainly getting lobbied at

251
00:13:54,840 --> 00:13:58,040
Speaker 1: home for all sorts of electronic devices that they had

252
00:13:58,120 --> 00:14:01,000
Speaker 1: wanted anyway, and me being my too, are willing to

253
00:14:01,040 --> 00:14:04,040
Speaker 1: sell out to keep them occupied. So there is so

254
00:14:04,080 --> 00:14:05,960
Speaker 1: there is that. I mean, you've got my own fiscal

255
00:14:06,000 --> 00:14:13,000
Speaker 1: stimulus going on right here. This is Bloombird Markets with

256
00:14:13,120 --> 00:14:17,560
Speaker 1: Lisa RAMOWDZ and Paul Sweeney on Bloomberg Radio. Well, like

257
00:14:17,640 --> 00:14:20,400
Speaker 1: all financial markets, the municipal bond market has certainly been

258
00:14:20,480 --> 00:14:23,760
Speaker 1: racked by volatility over the last couple of months. But

259
00:14:23,840 --> 00:14:27,520
Speaker 1: the upcoming and potential fourth fiscal stimulus plan is likely

260
00:14:27,560 --> 00:14:30,400
Speaker 1: to include a pretty big slug for infrastructure. The question

261
00:14:30,400 --> 00:14:32,120
Speaker 1: for a lot of investors is what would that mean

262
00:14:32,520 --> 00:14:35,120
Speaker 1: for the music bond market. Fortunately, we have Michael Jays

263
00:14:35,160 --> 00:14:38,880
Speaker 1: as chief US Public Policy and musicipal strategist from Morgan

264
00:14:38,960 --> 00:14:41,480
Speaker 1: Stanley joining us. Michael, thanks so much for joining us.

265
00:14:41,640 --> 00:14:44,040
Speaker 1: Let's start by just giving us a lay of the land.

266
00:14:44,480 --> 00:14:46,360
Speaker 1: What it's been like to be a mimunicipal bond investor

267
00:14:46,480 --> 00:14:51,120
Speaker 1: over the past couple of months. It hasn't been fun.

268
00:14:52,000 --> 00:14:57,000
Speaker 1: Um the volatility that you've seen over the last three

269
00:14:57,040 --> 00:15:00,760
Speaker 1: to four weeks. Uh, it's prettiest on the So the

270
00:15:01,080 --> 00:15:03,520
Speaker 1: movie you had from basically the types of the muni

271
00:15:03,560 --> 00:15:07,160
Speaker 1: bond markets to the wides, we're both bigger and magnitude

272
00:15:07,200 --> 00:15:09,960
Speaker 1: and speed by several degrees than what you had in

273
00:15:09,960 --> 00:15:15,120
Speaker 1: the global financial crisis. So, uh, you know, is this

274
00:15:15,200 --> 00:15:18,000
Speaker 1: is not something that is necessarily unexpected because you've got

275
00:15:18,000 --> 00:15:20,200
Speaker 1: a muni market structure which is given to about the

276
00:15:20,280 --> 00:15:23,280
Speaker 1: volatility and you saw this in Taper tantrum, and you

277
00:15:23,320 --> 00:15:29,440
Speaker 1: saw this, but this is this was just degrees further

278
00:15:29,840 --> 00:15:33,080
Speaker 1: off the chart, literally quite literally off the charts. Michael.

279
00:15:33,200 --> 00:15:36,440
Speaker 1: There's a question about just the volatility that comes from

280
00:15:36,480 --> 00:15:39,000
Speaker 1: a market that's not as liquid as a treasuries. And

281
00:15:39,040 --> 00:15:41,400
Speaker 1: then there's a volatility stemming from the question of whether

282
00:15:41,400 --> 00:15:44,960
Speaker 1: we're gonna start seeing municipal defaults. And I'm just gonna

283
00:15:45,000 --> 00:15:47,880
Speaker 1: go full catastrophic. Here is a subway system in New

284
00:15:47,920 --> 00:15:53,680
Speaker 1: York City going to default. Um, you know that's that's

285
00:15:53,680 --> 00:15:56,200
Speaker 1: actually that's a more complicated question to answer than you

286
00:15:56,200 --> 00:15:58,800
Speaker 1: would think. That's not what I want to hear. The

287
00:15:58,840 --> 00:16:02,200
Speaker 1: answer is no, these major metropolitan areas are solvent and

288
00:16:02,280 --> 00:16:04,440
Speaker 1: we're going to be fine. Is that not the reality

289
00:16:04,480 --> 00:16:08,200
Speaker 1: that we're talking about? Well, well, major must politan areas,

290
00:16:08,200 --> 00:16:12,760
Speaker 1: different subway system. Here's what I say. The chief of

291
00:16:12,800 --> 00:16:16,000
Speaker 1: the mt A basically expressed the view that they need

292
00:16:16,040 --> 00:16:20,680
Speaker 1: extra cash flow support because they're down ridership, and I

293
00:16:20,720 --> 00:16:24,640
Speaker 1: don't think that's necessarily Probably now, in the bill that

294
00:16:24,720 --> 00:16:26,760
Speaker 1: was just passed by Congress, they got about three point

295
00:16:26,760 --> 00:16:30,440
Speaker 1: eight billion dollars worth of external support, So from a

296
00:16:30,600 --> 00:16:34,480
Speaker 1: you know, from a cash flow perspective, once they're saying

297
00:16:34,480 --> 00:16:37,080
Speaker 1: that they need more than that, uh, and probably a

298
00:16:37,080 --> 00:16:39,400
Speaker 1: lot of this is going to be contingent on how

299
00:16:39,480 --> 00:16:42,600
Speaker 1: long ridership is depressed. As it is, I wouldn't necessarily

300
00:16:42,640 --> 00:16:44,720
Speaker 1: conflete what's going out with the m t A as

301
00:16:44,760 --> 00:16:49,360
Speaker 1: being indicative with kind of broader metro areas generally, right,

302
00:16:49,400 --> 00:16:51,200
Speaker 1: the mt A sort of its own system. New York

303
00:16:51,200 --> 00:16:54,200
Speaker 1: city government is its own sort of separate balance sheet

304
00:16:54,240 --> 00:16:56,600
Speaker 1: and income statement per se. So I think we have

305
00:16:56,640 --> 00:16:58,640
Speaker 1: to be a little bit careful about looking at credit

306
00:16:58,720 --> 00:17:01,000
Speaker 1: like the MTA, which has a lot of debt and

307
00:17:01,120 --> 00:17:04,880
Speaker 1: is experiencing a substantial decline in ridership, and extrapolating from

308
00:17:04,920 --> 00:17:07,479
Speaker 1: that to the broader kind of you know, you know,

309
00:17:08,040 --> 00:17:13,119
Speaker 1: high grade city metropolitan area world of MUNI bonds. So, Michael,

310
00:17:13,160 --> 00:17:17,159
Speaker 1: there is talking the upcoming fiscal Stimus number four that

311
00:17:17,200 --> 00:17:20,320
Speaker 1: there would be again a pretty big piece of infrastructure.

312
00:17:20,440 --> 00:17:23,359
Speaker 1: Hearing that from Speaker Pelosi, how do you think that

313
00:17:23,480 --> 00:17:26,120
Speaker 1: might play out and how kind of the market reacting

314
00:17:26,119 --> 00:17:30,639
Speaker 1: to that kind of potential um At the moment, I

315
00:17:30,680 --> 00:17:33,480
Speaker 1: don't think the market is terribly focused on this, probably

316
00:17:33,520 --> 00:17:36,560
Speaker 1: more focused on whether or not the Fed is going

317
00:17:36,600 --> 00:17:39,640
Speaker 1: to intervene here eventually. But here's what I say about

318
00:17:39,680 --> 00:17:43,399
Speaker 1: infrastructure when it comes to two muni's. Obviously it matters

319
00:17:43,480 --> 00:17:47,360
Speaker 1: quite a bit how the spending is structured. But historically,

320
00:17:47,800 --> 00:17:50,280
Speaker 1: when the federal government has decided to boost the amount

321
00:17:50,280 --> 00:17:54,320
Speaker 1: of infrastructure spending, um, it's doing what's actually done. This

322
00:17:54,440 --> 00:17:56,440
Speaker 1: takes some of the credit pressure off of those state

323
00:17:56,440 --> 00:17:59,639
Speaker 1: and local government. If the thorough government is putting more

324
00:17:59,680 --> 00:18:01,520
Speaker 1: money in of the systems that will government spend a

325
00:18:01,520 --> 00:18:06,000
Speaker 1: little bit less of their own so effectively helps them, uh,

326
00:18:06,160 --> 00:18:09,200
Speaker 1: improves on their capital needs, but not on their dime,

327
00:18:09,280 --> 00:18:11,840
Speaker 1: so to speak. So if you've got that slug of money,

328
00:18:12,040 --> 00:18:14,080
Speaker 1: you know, I kind of viewed it as a modest

329
00:18:14,160 --> 00:18:17,960
Speaker 1: credit positive, uh, not necessarily addressing what are the acute

330
00:18:17,960 --> 00:18:20,040
Speaker 1: needs of the muni credit system right now, But I'd

331
00:18:20,040 --> 00:18:23,320
Speaker 1: say it's some modest positive. I guess the reason why,

332
00:18:23,359 --> 00:18:25,000
Speaker 1: the reason why I asked about subway system, and yes,

333
00:18:25,040 --> 00:18:29,040
Speaker 1: that's an idiosyncratic credit, I guess on a broader level.

334
00:18:29,080 --> 00:18:31,479
Speaker 1: And you're talking about the amount of money that's going

335
00:18:31,520 --> 00:18:34,800
Speaker 1: to get injected in states municipalities from the Care Act

336
00:18:34,880 --> 00:18:38,560
Speaker 1: and from Congress, and I'm just struggling to understand the

337
00:18:38,640 --> 00:18:42,240
Speaker 1: depth of the pain. You have a slowdown in local economies,

338
00:18:42,320 --> 00:18:45,400
Speaker 1: you have an incredible increase in spending trying to build

339
00:18:45,440 --> 00:18:48,680
Speaker 1: out the health care infrastructure. Is there a high chance

340
00:18:48,720 --> 00:18:51,800
Speaker 1: that we're going to see muni defaults in a significant way,

341
00:18:51,800 --> 00:18:54,000
Speaker 1: in a way that we've never seen before, especially when

342
00:18:54,000 --> 00:18:59,000
Speaker 1: you throw in the pensions and the underfunded status there. Yeah, Well,

343
00:18:59,080 --> 00:19:01,480
Speaker 1: if you have to answer the question sector by sector.

344
00:19:01,640 --> 00:19:03,280
Speaker 1: I guess the first thing I would say is that

345
00:19:03,760 --> 00:19:06,399
Speaker 1: hundred fifty billion dollars out of this bill going to

346
00:19:06,520 --> 00:19:10,320
Speaker 1: state ends up being somewhere around kind of two to

347
00:19:10,440 --> 00:19:16,320
Speaker 1: five percent of general fund revenues of states. Now, our

348
00:19:16,359 --> 00:19:20,160
Speaker 1: economists have us UH in real GDP terms being down

349
00:19:20,240 --> 00:19:21,720
Speaker 1: over the course of the year about five and a

350
00:19:21,760 --> 00:19:26,960
Speaker 1: half per cent. So if you assume and I don't

351
00:19:26,960 --> 00:19:28,640
Speaker 1: know if it's a good assumption it or not, we're

352
00:19:28,640 --> 00:19:30,479
Speaker 1: still doing our own work on it, but you assume

353
00:19:30,560 --> 00:19:33,720
Speaker 1: that UH state reve state tax revenues might be done

354
00:19:33,720 --> 00:19:36,840
Speaker 1: at least that much, then it's probably fair to say

355
00:19:36,880 --> 00:19:39,120
Speaker 1: that we've only addressed part of the kind of year

356
00:19:39,200 --> 00:19:43,359
Speaker 1: term shortfall. And if you're a state, then you're gonna

357
00:19:43,400 --> 00:19:46,000
Speaker 1: have to either draw down on your own reserves, do

358
00:19:46,119 --> 00:19:50,840
Speaker 1: some casual borrowing, or undertake some austerity, or probably some

359
00:19:50,960 --> 00:19:54,160
Speaker 1: combination of all of those. And you know, state, this

360
00:19:54,200 --> 00:19:56,879
Speaker 1: is this, You know, the severity of this downturn is

361
00:19:57,000 --> 00:20:00,240
Speaker 1: much greater than anyone expected. But coming in to this,

362
00:20:00,320 --> 00:20:02,080
Speaker 1: I think it was it was fair to say that

363
00:20:02,760 --> 00:20:06,760
Speaker 1: governments had necessarily build reserves back up the levels where

364
00:20:06,800 --> 00:20:09,240
Speaker 1: before the global financial crisis they would have been able

365
00:20:09,320 --> 00:20:12,800
Speaker 1: to just rely on their reserves. So it's a sector

366
00:20:12,840 --> 00:20:14,880
Speaker 1: we've been underway for a while, and I think you're

367
00:20:14,880 --> 00:20:17,679
Speaker 1: still supposed to look at it that way. But if

368
00:20:17,680 --> 00:20:20,679
Speaker 1: you're looking at something like airports, for example, which you know,

369
00:20:21,640 --> 00:20:24,959
Speaker 1: on the surface could look pretty scary because no one's flying,

370
00:20:25,680 --> 00:20:29,360
Speaker 1: the liquidity in the reserve position of airports is um

371
00:20:29,400 --> 00:20:31,520
Speaker 1: almost off the charge on the other side, so we

372
00:20:31,560 --> 00:20:34,480
Speaker 1: think there's a lot more opportunities there. Michael Jesus, thank

373
00:20:34,480 --> 00:20:36,400
Speaker 1: you so much for being with us. Michael Jesus, chief

374
00:20:36,520 --> 00:20:40,399
Speaker 1: US Public Policy and mdicipal strategist for Morgan Stanley, joining

375
00:20:40,480 --> 00:20:45,840
Speaker 1: us putting to bed some of my absolute catastrophic situation extrapolations,

376
00:20:45,840 --> 00:20:51,360
Speaker 1: which is a good thing. My father is a mathematician.

377
00:20:51,480 --> 00:20:54,240
Speaker 1: He and I were talking about how you can't model chaos,

378
00:20:54,640 --> 00:20:58,240
Speaker 1: and we're kind of entering a chaos type situation. So

379
00:20:58,280 --> 00:21:01,240
Speaker 1: there is that when we talk about chaos and sort

380
00:21:01,280 --> 00:21:03,280
Speaker 1: of to fall out, you think about commercial real estate,

381
00:21:03,280 --> 00:21:05,679
Speaker 1: and you think about all those stores that are forced

382
00:21:05,680 --> 00:21:09,080
Speaker 1: to shut her and unable to pay their rents. And

383
00:21:09,119 --> 00:21:13,199
Speaker 1: we're scaring that not only with stores and other businesses,

384
00:21:13,240 --> 00:21:16,480
Speaker 1: but also individuals, which really raises a question what's the

385
00:21:16,560 --> 00:21:18,760
Speaker 1: value of commercial real estate and will ever be the

386
00:21:18,800 --> 00:21:22,199
Speaker 1: same again as people work from home and increasingly choose

387
00:21:22,240 --> 00:21:24,960
Speaker 1: remote work paths rather than going to the office. Kevin

388
00:21:25,000 --> 00:21:27,440
Speaker 1: Thorpe joining us now. I'm really looking forward to this conversation.

389
00:21:27,520 --> 00:21:31,840
Speaker 1: Chief economist and head of global research at Kushman and Wakefield. Kevin,

390
00:21:32,480 --> 00:21:34,480
Speaker 1: you know, we've heard a lot of gloom and doom,

391
00:21:34,320 --> 00:21:37,760
Speaker 1: a massive dislocation the commercial real estate market, with a

392
00:21:37,800 --> 00:21:40,360
Speaker 1: lot of people saying that not only will miss payments

393
00:21:40,840 --> 00:21:45,080
Speaker 1: lead to increasing declines in current values, but a shift

394
00:21:45,119 --> 00:21:49,560
Speaker 1: away from the office place, uh moving, moving the valuation

395
00:21:49,600 --> 00:21:54,120
Speaker 1: permanently lower in the longer term. What's your view on that? Yeah,

396
00:21:54,200 --> 00:21:56,239
Speaker 1: so first thanks thanks for having me on, and I

397
00:21:56,280 --> 00:21:58,800
Speaker 1: do want to give a big salute to all the

398
00:21:59,320 --> 00:22:02,959
Speaker 1: healthcare for fessionals, the doctors and nurses as well as

399
00:22:03,000 --> 00:22:05,919
Speaker 1: you know, the cleaning staffs, building maintenance, just really everyone

400
00:22:05,920 --> 00:22:08,879
Speaker 1: who's on the front line, uh doing their part to

401
00:22:09,160 --> 00:22:12,200
Speaker 1: battle the outbreak. I'm truly in awe of these people,

402
00:22:12,760 --> 00:22:16,240
Speaker 1: and I think I heard earlier the earlier point made

403
00:22:16,240 --> 00:22:20,200
Speaker 1: that you can't really model chaos, and I couldn't agree

404
00:22:20,240 --> 00:22:24,040
Speaker 1: more that ultimately the commercial real estate sector, you know,

405
00:22:24,119 --> 00:22:27,480
Speaker 1: has strong, strong links, strong correlations to the broader economy,

406
00:22:27,960 --> 00:22:30,800
Speaker 1: and there's just so much that's unknowable. The path of

407
00:22:30,840 --> 00:22:34,520
Speaker 1: the virus, duration, it's severity all. I mean, all of

408
00:22:34,560 --> 00:22:37,560
Speaker 1: these factors are central to our ability to model the

409
00:22:37,600 --> 00:22:41,240
Speaker 1: impact on property, and right now there's just just too

410
00:22:41,240 --> 00:22:44,000
Speaker 1: many unknowns. This is why forecasts are just all over

411
00:22:44,040 --> 00:22:48,480
Speaker 1: the map on this and and consistently being revised downwards weekly.

412
00:22:48,480 --> 00:22:50,080
Speaker 1: I mean, what we do know is that ten million

413
00:22:50,119 --> 00:22:52,639
Speaker 1: people just over the last few weeks have applied for

414
00:22:52,720 --> 00:22:56,800
Speaker 1: unemployment benefits, and that recession is truly just a given

415
00:22:56,800 --> 00:23:01,200
Speaker 1: at this point. In terms of property, I mean, in pricing, uh,

416
00:23:01,400 --> 00:23:04,680
Speaker 1: it's it's difficult. It's not impossible to price risk right

417
00:23:04,680 --> 00:23:07,359
Speaker 1: in this environment. And so what we're seeing is that

418
00:23:07,400 --> 00:23:10,439
Speaker 1: many lenders and investors have just adopted this wait and

419
00:23:10,520 --> 00:23:14,320
Speaker 1: see posture. UM, but would emphasize that this is not

420
00:23:14,640 --> 00:23:18,359
Speaker 1: the great financial crisis, right, that households and balance sheets

421
00:23:18,359 --> 00:23:22,159
Speaker 1: are in much better shape. There's last cycle. Dry powder

422
00:23:22,280 --> 00:23:24,760
Speaker 1: wasn't there when when you called at this time it

423
00:23:24,880 --> 00:23:27,399
Speaker 1: probably will be UM. And I do think that the

424
00:23:27,400 --> 00:23:31,119
Speaker 1: big institutions remember the missed opportunities and not to blank

425
00:23:31,160 --> 00:23:34,840
Speaker 1: capital towards the bottom. So a lot of unknowns, but

426
00:23:35,480 --> 00:23:38,600
Speaker 1: you know, certainly there's different scenarios where the capital markets

427
00:23:38,600 --> 00:23:41,960
Speaker 1: and property could could come come storming back once we

428
00:23:42,000 --> 00:23:45,359
Speaker 1: have more certainty. So, Kevin, give us a sense of

429
00:23:45,520 --> 00:23:50,040
Speaker 1: how the commercial real estate industry fared in the context

430
00:23:50,040 --> 00:23:55,600
Speaker 1: of the two trillion dollar fiscal stimulus plan. Yeah. So, um, well,

431
00:23:55,760 --> 00:23:58,840
Speaker 1: I think the really starts without I'll come at from

432
00:23:58,840 --> 00:24:01,399
Speaker 1: the perspective of the land lords, of the building owners

433
00:24:01,400 --> 00:24:06,199
Speaker 1: to landlords, and it's um, you can't emphasize enough that

434
00:24:06,240 --> 00:24:09,160
Speaker 1: the landlords are being impacted by the decline in the economy,

435
00:24:09,240 --> 00:24:12,680
Speaker 1: right that's really the central issue. And many businesses are

436
00:24:12,680 --> 00:24:15,040
Speaker 1: just struggling to make money right now that through no

437
00:24:15,320 --> 00:24:18,600
Speaker 1: no fault of their own, just paying rent is just

438
00:24:18,720 --> 00:24:21,879
Speaker 1: already difficult for some, and if this drags out, it

439
00:24:21,920 --> 00:24:25,800
Speaker 1: will become increasingly difficult for many. And so you know,

440
00:24:25,880 --> 00:24:28,720
Speaker 1: the Care Act, any really any policy that aims to

441
00:24:28,800 --> 00:24:32,000
Speaker 1: get the economy back on its feet more rapidly, is

442
00:24:32,040 --> 00:24:34,600
Speaker 1: generally good for landlord, generally good for tenants. And so

443
00:24:34,640 --> 00:24:37,440
Speaker 1: what the Care Act does, then it does a lot

444
00:24:37,680 --> 00:24:42,360
Speaker 1: um It provides, you know, qualifying tenants with different liquidity options.

445
00:24:42,359 --> 00:24:45,360
Speaker 1: It allows some of them to apply for aid their

446
00:24:45,480 --> 00:24:48,760
Speaker 1: tax provisions, and then sort of their feed through impacts

447
00:24:48,760 --> 00:24:52,119
Speaker 1: on the consumer side with the cash payments to households

448
00:24:52,119 --> 00:24:55,120
Speaker 1: and expanding on employment benefits. I think all of that

449
00:24:55,160 --> 00:24:58,440
Speaker 1: should help. I will say that, you know, we are

450
00:24:58,600 --> 00:25:01,679
Speaker 1: encouraged by what we're being so far. So landlords and

451
00:25:01,800 --> 00:25:05,359
Speaker 1: tenants are, you know, they're they're working on solutions together.

452
00:25:05,480 --> 00:25:08,160
Speaker 1: They do recognize it's just a horrible thing that it

453
00:25:08,200 --> 00:25:11,080
Speaker 1: came out of nowhere. It's no one's fault, and so

454
00:25:11,400 --> 00:25:13,639
Speaker 1: you know, there's a very much it let's work together

455
00:25:13,680 --> 00:25:16,160
Speaker 1: to get through this mentality. Yeah, and Kevin, to your

456
00:25:16,160 --> 00:25:19,760
Speaker 1: point about first responders and healthcare workers. At seven pm

457
00:25:19,840 --> 00:25:22,240
Speaker 1: every night, everyone opens their windows here in New York

458
00:25:22,240 --> 00:25:25,639
Speaker 1: City and cheers for the first responders. And yesterday people

459
00:25:25,720 --> 00:25:28,639
Speaker 1: cheered for three straight minutes and had pots and pans

460
00:25:28,640 --> 00:25:30,960
Speaker 1: that they were banging, and it was it's getting more

461
00:25:30,960 --> 00:25:33,560
Speaker 1: and more robust with every day. I do want to

462
00:25:33,560 --> 00:25:35,800
Speaker 1: get to the question though, of how we're going to

463
00:25:35,880 --> 00:25:38,320
Speaker 1: emerge from this and some of the sea changes that

464
00:25:38,400 --> 00:25:42,720
Speaker 1: people are going to experience, and and the office place

465
00:25:42,800 --> 00:25:45,280
Speaker 1: really has been in the center of that do you

466
00:25:45,720 --> 00:25:49,280
Speaker 1: foresee a time in which a much greater proportion of

467
00:25:49,280 --> 00:25:52,359
Speaker 1: the workforce does start to work remotely, and we do

468
00:25:52,440 --> 00:25:55,919
Speaker 1: see the office space take less relevance in downtown in

469
00:25:56,040 --> 00:26:01,400
Speaker 1: metropolitan areas become less crowded. Well, I do think that

470
00:26:01,440 --> 00:26:04,800
Speaker 1: what you'll see is every you know, almost all businesses

471
00:26:04,880 --> 00:26:08,000
Speaker 1: are are stopping or thinking, let's let's take another look

472
00:26:08,000 --> 00:26:11,960
Speaker 1: at that. Uh. What I would emphasize and we're we're

473
00:26:12,040 --> 00:26:14,200
Speaker 1: thinking through that all of that right now and studying

474
00:26:14,200 --> 00:26:17,359
Speaker 1: this and talking to different scenarios with our clients. I

475
00:26:17,359 --> 00:26:20,080
Speaker 1: would emphasize that there, this isn't the first time that

476
00:26:20,200 --> 00:26:23,399
Speaker 1: real estate has had to adapt to just changing a

477
00:26:23,480 --> 00:26:25,840
Speaker 1: changing macro environment. And you kind of go back to

478
00:26:25,920 --> 00:26:28,920
Speaker 1: last ten to fifteen years, we've we've observed so many

479
00:26:29,000 --> 00:26:31,480
Speaker 1: disruptions when you think about property in real estates with

480
00:26:31,600 --> 00:26:36,720
Speaker 1: these technology shifts, coworking, the movement towards density, you know,

481
00:26:36,760 --> 00:26:40,960
Speaker 1: packing more people in recessions and real estate does you

482
00:26:41,000 --> 00:26:44,600
Speaker 1: know evolved through these through these macro shifts. And I

483
00:26:44,640 --> 00:26:47,320
Speaker 1: do think teleworking is kind of a good example, especially

484
00:26:47,400 --> 00:26:50,360
Speaker 1: right now, where you know, people have been able to

485
00:26:50,560 --> 00:26:53,159
Speaker 1: connect to the internet and work from home for a

486
00:26:53,160 --> 00:26:57,119
Speaker 1: long time is going on, you know, fifteen twenty years,

487
00:26:57,200 --> 00:27:00,560
Speaker 1: and demand for office space has continued to grow, right

488
00:27:00,600 --> 00:27:03,640
Speaker 1: so the throughout that period. So the world continues to

489
00:27:03,680 --> 00:27:06,760
Speaker 1: build office buildings for the for the I think the

490
00:27:06,800 --> 00:27:10,199
Speaker 1: simple reason that there is strong demand for them. And

491
00:27:10,240 --> 00:27:12,840
Speaker 1: so yeah, I do think this event will cause businesses

492
00:27:12,880 --> 00:27:15,879
Speaker 1: to take another look at their space. But you know

493
00:27:15,880 --> 00:27:18,600
Speaker 1: the I do have confidence the property markets will adapt

494
00:27:18,600 --> 00:27:21,639
Speaker 1: to continue to play an import role in the economy. So, Kevin,

495
00:27:21,680 --> 00:27:23,760
Speaker 1: you know, I think there's a fairly obviously very good

496
00:27:23,760 --> 00:27:27,320
Speaker 1: consensus about the second quarter GDP UH contraction is gonna

497
00:27:27,359 --> 00:27:30,840
Speaker 1: be very deep, very severe, But obviously they're probably a

498
00:27:30,880 --> 00:27:34,320
Speaker 1: little bit more of UH confusion or just you know,

499
00:27:34,440 --> 00:27:37,000
Speaker 1: I think people discussion about how the country will come

500
00:27:37,040 --> 00:27:40,000
Speaker 1: out of that second quarter contraction. How are you thinking

501
00:27:40,000 --> 00:27:42,480
Speaker 1: about it at Kushman and Wakefield in terms of you know,

502
00:27:42,560 --> 00:27:46,240
Speaker 1: third quarter, fourth quarter in sure and and you know,

503
00:27:46,520 --> 00:27:48,719
Speaker 1: very just doing back of the envelope math when we

504
00:27:48,760 --> 00:27:52,359
Speaker 1: model this, you you get to a negative twenty Q

505
00:27:52,520 --> 00:27:55,800
Speaker 1: two GDP g g P number UH in the second quarters.

506
00:27:56,000 --> 00:27:58,080
Speaker 1: To your point. The other other point I would make

507
00:27:58,160 --> 00:28:01,359
Speaker 1: is just mathematically, just in terms of arithmetic, even if

508
00:28:01,400 --> 00:28:04,919
Speaker 1: it's not a super strong, you know, rebound in the

509
00:28:05,000 --> 00:28:08,120
Speaker 1: third quarter. It may look strong just because you're coming

510
00:28:08,280 --> 00:28:10,120
Speaker 1: the math of it has lowered your base so much

511
00:28:10,160 --> 00:28:12,840
Speaker 1: on g d P coming off of Q two, I

512
00:28:12,880 --> 00:28:17,119
Speaker 1: think timing this again is just nearly impossible. So the

513
00:28:17,119 --> 00:28:19,360
Speaker 1: way I I we've started to think about is what's

514
00:28:19,400 --> 00:28:22,240
Speaker 1: the framework for recovery, and I do think that's becoming clear.

515
00:28:22,320 --> 00:28:24,760
Speaker 1: So there's the phase one, which is where I think

516
00:28:24,800 --> 00:28:28,119
Speaker 1: we are now, this defensive phase, which has contained the

517
00:28:28,200 --> 00:28:31,920
Speaker 1: virus as much as possible, mitigate the economic damage through

518
00:28:32,160 --> 00:28:34,920
Speaker 1: robust policy measures, and you know, I think that's where

519
00:28:34,960 --> 00:28:39,480
Speaker 1: we are. Phase two is the disaster recovery phase, and

520
00:28:39,560 --> 00:28:42,600
Speaker 1: so that's likely to be a partial reopening of the economy.

521
00:28:42,920 --> 00:28:46,720
Speaker 1: People start easing back to work, confidence begins, UH sort

522
00:28:46,720 --> 00:28:50,160
Speaker 1: of incrementally coming back, as as as hopefully the infections

523
00:28:50,200 --> 00:28:53,160
Speaker 1: begin to abate. And then there's Phase three, which is

524
00:28:53,240 --> 00:28:55,719
Speaker 1: the sort of the march back to healthy, let's call

525
00:28:55,720 --> 00:28:59,440
Speaker 1: it march back to healthy GDP gross domestic product. And economically,

526
00:28:59,560 --> 00:29:03,400
Speaker 1: we're certainly aiming for the v shape, a snapback recovery,

527
00:29:03,800 --> 00:29:07,040
Speaker 1: but there's certainly plenty of other shapes. I do think

528
00:29:07,120 --> 00:29:10,200
Speaker 1: ultimately the trajectory of the recovery comes down to the

529
00:29:10,200 --> 00:29:13,160
Speaker 1: path of the virus itself and where we are in

530
00:29:13,200 --> 00:29:16,600
Speaker 1: it and when competence is restored. Uh, my gut says

531
00:29:16,680 --> 00:29:20,560
Speaker 1: this is slower U shape is looking increasingly likely at

532
00:29:20,560 --> 00:29:23,760
Speaker 1: this stage. We're speaking with Kevin Thorpe, chief economist and

533
00:29:23,800 --> 00:29:26,800
Speaker 1: head of Global Research, Akushman and Wakefield, and I do

534
00:29:26,960 --> 00:29:29,560
Speaker 1: wonder there have been a number of calls for the

535
00:29:29,560 --> 00:29:33,000
Speaker 1: Federal Reserve and the federal government to take a stronger

536
00:29:33,120 --> 00:29:37,200
Speaker 1: role in back stopping real estate valuations, including commercial real estate.

537
00:29:37,720 --> 00:29:40,160
Speaker 1: What's your view on that, given the fact that a

538
00:29:40,160 --> 00:29:43,160
Speaker 1: lot of people are saying, you know, focus first on

539
00:29:43,360 --> 00:29:49,200
Speaker 1: the people who are losing their jobs and supporting state's municipalities. Yeah, so,

540
00:29:49,600 --> 00:29:52,440
Speaker 1: you know, so first, I think the policy makers, both

541
00:29:52,440 --> 00:29:56,560
Speaker 1: fiscal monetary, the response to this economic crisis. I mean

542
00:29:56,640 --> 00:30:00,280
Speaker 1: it's it's it dwarfs anything we've ever seen before, right,

543
00:30:00,320 --> 00:30:03,040
Speaker 1: I mean its disfer perspective. If you sort of take

544
00:30:03,160 --> 00:30:06,440
Speaker 1: the two point two trillion dollar Cares Act, the other

545
00:30:06,480 --> 00:30:09,040
Speaker 1: two bills that came before that, you factor in all

546
00:30:09,080 --> 00:30:11,840
Speaker 1: of the big bold moves by the Federal Reserve, flash

547
00:30:11,960 --> 00:30:16,600
Speaker 1: interest rates, restarting QWEE you know, launching new credit facilities

548
00:30:16,600 --> 00:30:18,920
Speaker 1: of dollar squall lines. I mean, all of that really

549
00:30:18,960 --> 00:30:22,640
Speaker 1: summed up to a huge over g d P, so

550
00:30:22,640 --> 00:30:24,680
Speaker 1: they haven't. I'm so sorry to do this. UM let's

551
00:30:24,680 --> 00:30:27,200
Speaker 1: continue this another time. I'm sorry to say, but we

552
00:30:27,280 --> 00:30:30,000
Speaker 1: are getting Muriel Bowser. That was Kevin Thorpe of Cushman

553
00:30:30,040 --> 00:30:33,160
Speaker 1: and Wakefield. Thanks for listening to the Bloomberg P and

554
00:30:33,240 --> 00:30:35,800
Speaker 1: L podcast. You can subscribe and listen to interviews at

555
00:30:35,840 --> 00:30:39,479
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. M Paul Sweeney,

556
00:30:39,560 --> 00:30:42,320
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woit's

557
00:30:42,320 --> 00:30:45,360
Speaker 1: I'm on Twitter at Lisa abram Woit's one before the podcast.

558
00:30:45,400 --> 00:30:47,960
Speaker 1: You can always catch us worldwide on Bloomberg Radio